Timing the market is like punching water—it accomplishes nothing and makes you look like an idiot. The objective, of course, is to stay true to the investment maxim of “buy low, sell high,” but in the moment, that’s virtually impossible to achieve. As a result, investors end up losing out.
The problem is that sometimes it feels like a market top when it’s not. For the past several years, it’s felt like we’re due a correction, but the market has continued to go up. Certainly now, with friction between our trading partners, tariffs, and a flattening yield curve, you can make a strong argument for an impending correction.
But consider this: If you had a crystal ball and sold right before the housing crisis (October 2007) or Black Monday (August 2015), during the periods since, you would have missed out on 78.4% and 34.7% returns, respectively. In other words, the market rewards it’s long-term participants, even though it can hurt in the short-term.
There is a classic study from the book Master Trader that reveals $1 invested in the Dow in 1900 would be worth $290 by 2013. However, if that investor missed just the five best trading days in each year, that same $1 would be worth less than a penny. That’s only about 2% of trading days, which means there’s virtually zero room for error.
So if you are going to take money in and out of the market, you have to get it exactly right, or the market will punish you. Instead, create a prudent allocation based on your financial objectives, investment timeframe, and individual risk tolerance, then rebalance periodically to keep you allocation in line. Other than that, just let it ride.
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@LeFleurFinancial.com.